Venezuela currency blues hit U.S. blue-chip companies

Tim McLaughlin and Dena Aubin

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BOSTON, July 30 (Reuters) - Venezuela's currency woes cut nearly $3 billion in profit at U.S. blue-chip companies during the second quarter and prompted Procter & Gamble Co to remove its operations in the South American country from its consolidated financial reports.

More so-called deconsolidation moves and exits from Venezuela are likely to happen during the second half of the year as U.S. corporations grow increasingly frustrated with Venezuela's sinking Bolivar currency, according to analysts and U.S. regulatory filings.

Deconsolidating Venezuelan operations means that business can largely no longer hurt or benefit a U.S. parent company's financial results. Often companies are taking a big one-time charge so that they can ring-fence what is left in Venezuela.

Colgate-Palmolive Co and Goodyear Tire & Rubber Co , for example, said they also may deconsolidate their Venezuela operations if economic conditions in that country worsen, according to U.S. regulatory filings made this week.

And Mattel Inc said it may cease operations in Venezuela altogether if volatility in Venezuela worsens.

With slumping crude oil prices and debt payments coming due this year, the Venezuelan government has fewer U.S. dollar reserves available to meet the private sector's demands. As a result, entities may have a harder time obtaining U.S. dollars than any time since currency controls were first implemented in 2003, Ernst & Young said in an April report.

Jack Ciesielski, president of investment research firm R.G. Associates, said if conditions do not improve in Venezuela, he expects to see more companies follow P&G's lead.

"I'd say the die has been cast," he said.

Drug maker Merck & Co Inc took a $715 million second-quarter hit against profit after it revalued its Venezuela assets using a less preferential exchange rate.

But the biggest impact from Venezuela's currency woes came from Procter & Gamble. The world's largest consumer products maker on Thursday announced a $2.1 billion charge against earnings, reflecting the company's inability to convert Venezuela's currency or pay dividends.

Beginning in the third quarter, P&G will exclude the operating results of its Venezuelan subsidiaries from its consolidated financial statements.

Hits to U.S. corporate profits in Venezuela accelerated in February when the President Nicolas Maduro devalued the bolivar by 70 percent via a new currency system known as Simadi. Previously, many U.S. companies valued their monetary and non-monetary assets at the most preferred rate of 6.3 bolivars to the dollar. But under Simadi, the exchange rate has been around 200 bolivars.